2018-19 Budget – Treasurer abandons extra 0.5% Medicare Levy (stay at 2.0%) and flags other tax cuts to keep Federal taxes under 23.9% of GDP

On 26.4.2018, the Federal Treasurer told the Australian Business Economists, in Sydney, the following.

1. The Government would not be proceeding with its planned increase in the Medicare levy to 2.5% from 1 July 2019. This was to fund the NDIS (National Disability Insurance Scheme) as the Government considers the budget has improved enough to guarantee funding for the NDIS.
2. He also flagged that the coming Budget would deliver tax cuts to middle to lower income taxpayers.

Mr Morrison said company profits that were savaged in the prolonged down turn of mining investment, but he said things have improved, as evidenced by the increased tax receipts to the Commonwealth. He said this year’s Budget will keep the Government on track to bring the budget back into balance by 2020-21.

MEDICARE LEVY: Abandoning the additional levy, presumably means that the Medicare Levy Amendment (National Disability Insurance Scheme Funding) Bill 2017 plus 9 associated Bills (that had passed the House of Reps without amendment and were before the Senate) will not proceed. Similarly, flow-on increases to the FBT rate will also not therefore proceed.

At the same time, Shadow Treasurer Chris Bowen has announced that Labor will not proceed with its proposal to increase the Medicare levy by 0.5% (to 2.5%), on those earning above $87,000.

TAX RELIEF (Self-imposed ‘speed limit’): Mr Morrison said the Government has imposed, on itself, a commitment not to grow taxes beyond 23.9% of our economy (GDP).

• He said that in 2016-17, tax-to-GDP ratio was 21.6%, with tax receipts having grown by 4.7% from the previous year.
• This year (2018-19), he said that company profits have moved out of their ‘lull’ and Treasury predicts a 7.9% rise in tax receipts, with the tax-to-GDP ratio to rise to 22.5% before reaching 23.8% in 2020-21 when the budget is projected to return to balance”.
• The Treasurer said that tax relief will be required to stay under the cap on current projections over the forward estimates and across the medium term.
• It will also be required to prevent too many Australians moving into a higher tax bracket.

THE ‘PROGRESSIVE’ RATES IN OUR INCOME TAX SYSTEM: The Treasurer made following observations about our income tax system.

1. He said that 1% of taxpayers paid 17% of the $186 billion collected, in personal income tax, for 2015-16.
2. The 4.1% of Australians, in the top tax bracket (416,000 individuals) paid 30% of the personal income tax, that year.
3. Likewise, the top 10% of taxpayers pay 45% of total personal income tax paid to the Commonwealth.
4. The 23% of taxpayers in the top 2 tax brackets (2.4 million Australians), pay 65% of personal income tax.
5. 20 years ago, the top 10% paid just 36%.
6. He said that the income tax burden is already falling on a smaller group of Australians and the Government cannot push Australia’s ‘progressive’ tax system to breaking point.
7. “I want a tax and welfare system that rewards effort and fosters aspiration”.

6.5.18

[Treasurer’s website: 26 April 2018 Speech; LTN 78, 26/4/18; FJM; Tax Month – April 2018]

Study questions (answers available)

1. Is the Medicare Levy going to remain at 2.0% (abandoning the extra 0.5% provided for in Bills before Parliament)?
2. Has this been made possible by Federal tax collections increasing?
3. Is this Medicare change, and the tax cuts, hinted at, to keep revenues under the Government’s self-imposed cap of 29.3% of GDP?
4. Has the percentage of personal income tax, that the top 10% of individuals pay, increased over the last 20 years, from 36% to 45%?